ACCT106 Managerial Accounting

Question one

Issues with the finance function in comet Texas

Project overruns

Project overrun is when a deficit occurs after a business incurs unexpected costs that the management had not included in the budget. In comet Texas, employees in sales and professional services have inexact calculations on profitability. Employees do forge costs. They explain how the unexpected cost increments attributed to other departments were not applied for, but there were different additional costs.

Underbidding of projects

Underbidding of projects refers to a situation whereby an organization lowers its bid as compared to another offer. From the case study, comet Texas the minimum project bid is $5,000 compared to the two-year largest project, which was billed at $1.8m. For the company to progress, the offer has to rise yearly.

Rising employee salaries

Refers to salary increments of workers that occur over time. From the case study, employees' project allocation is done on the basis of project manager preference. A certain percentage of employees always have a 100% billable rate of utilization per year while others rate at 70%. These incorrect salary resources have impacted the business heavily, causing the company to hire regularly, cutting back on employees to sustain the company.

Question two

Solutions (Tan, 2016)

Project overruns

• The management should do a thorough project planning before starting a project by considering all the possible scenarios and use past historical data.
• The management should ensure that no changes are made to the budget to avoid cost overruns.
• The management should reallocate resources in case the project spending exceeds the budget to avoid project overrun.

Underbidding of projects

The best solution to underbidding projects is to eat the cost or ask the client to cover it.

Rising employee salaries

The management should handle salary increments by paying employees based on their performance. Differentiating the wages by performance, assigning rewards to the company's top-performing employees, and reducing the pay for low-performing employees saves the company.

Question three

Ways of coming up with job costs during the bid process while the project is being performed and after the project is concluded (Zhan & Pan, 2020).

During the bid process, the management should enter the market before the competitors, monitor all the construction bidding marketplaces, and carefully look for jobs. Knowing the criteria to be used by the competitors will help the management make better pricing decisions.

When the project is running, the management should develop a detailed estimate for the costs to be incurred by the project and add up all the cost estimates into the budget plan. It will help the management to follow up on the ongoing project based on the budget.

After the project is concluded, the management should perform a project plan by giving details of all the estimates. The budget used for purchasing materials and paying workers, cash flow used at each stage of the project, the direct and indirect expenses expected, completion timeline and productivity targets, and a progress invoicing schedule and milestone markers will aid in project planning. A job costing estimate will help the management set up the bid wisely to gain a competitive advantage in the market. It should then do a profitability job analysis by performing financial analysis to develop the proper pricing of the project by considering the new and existing customers and competitors.

Question four

Importance of doing break-even analysis and incorporating the concepts of break-even in the project bid, management, and billing process (Tui et al., 2017)

Break-even analysis is an economic tool for determining the number of sales required to cover the project's total costs. Break-even analysis helps the management establish the size of units to be sold to cover the costs, design a pricing strategy to be used on the sales and budget, and setting targets.

In project bids, break-even analysis helps the management analyze the areas to cut costs and adjust the offer until it makes the company competitive.

In management, break-even analysis helps the management to examine the margin of safety from the collected revenues and the costs associated with the exercise and to determine the number of units to be sold to cover the total costs applied on the project.

In the billing process, break-even analysis helps the management set up the project's selling price and issue invoices to customers.

Question five

Three benchmarks to recommend (Rodrigues et al., 2021).

Benchmarking refers to comparing the performance of the business against specific points. The three benchmarks to be used are;

Performance benchmarking. The management should gather information on how the business is doing in terms of revenue growth outcomes to customers' satisfaction and compare the products with other companies' results.

Process benchmarking- the management should compare the processes used in production between their company’s and successful companies in the market and then identify the ways to better their operations. Doing this will make the company gain a competitive advantage in the market.

Strategic benchmarking- the management should compare their business models, approaches, and strategies with those of other companies and develop strategies to help them compete favorably in the market.

References

Rodrigues, J., Ruivo, P., & Oliveira, T. (2021). Mediation role of business value and strategy in firm performance of organizations using software-as-a-service enterprise applications. Information & Management, 58(1), 103289.

Tan, W. O. (2016). Interfacing and Complexity Issues in Project Management: A Case Study of A Condominium Construction Project in Klang Valley (Doctoral dissertation, UTAR).

Tui, R. N. S., Anas, A. V., & Fitriani, N. (2017). Breakeven Point and Incremental Analysis in Decision Making of Lease-Purchase Option of Heavy Equipment at Nickel Lateritic Ore Mining. ARPN Journal of Engineering and Applied Sciences, 12(13).

Zhan, W., & Pan, W. (2020). Formulating systemic construction productivity enhancement strategies. Journal of Construction Engineering and Management, 146(8), 05020008.

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